Tuesday, August 24, 2010

East Asia and LatAm

Image taken from Web Resources Depot.

New graphic tools tell the oft-repeated story behind these two regions in a visually compelling format.

Lately I have been playing around with the online graphing tools of the Legatum Institute; in particular, I have been using the results of the 2009 Prosperity Index which the Institute publishes to compare East Asia and Latin America. This multi-dimensional index is an aggregator of sorts in that it combines various measures of prosperity and well-being and allows users to plot different countries on a “spider web” chart.

It is a well-known fact that East Asian and Latin American countries share many socio-cultural traits as well as development strategies. This is borne out by the Institute’s results for these regions. As shown here, LatAm seems to converge into one distinct pattern, while East Asia does the same here. Note that for purposes of demonstration, I have lumped the Philippines (a Latin country transplanted in Asia) and Chile (the reverse case) with their affinitive counterparts.

The patterns show different models of development. LatAm nations score high on Personal Freedom and Democratic Institutions, but relatively low when it comes to Economic Fundamentals, Entrepreneurship and Innovation, and Social Capital. Despite this, the most well-off nations of Argentina, Uruguay and Costa Rica seem to do well in terms of some social indicators Education, Health, and Safety and Security. There is a general lack of good performance in Governance save for the richer nations.

The opposite seems to be happening with East Asia. Here Personal Freedom seems to have been less prioritized in favor of Economic Fundamentals, Entrepreneurship and Innovation, Health, Education, and Safety and Security. As countries in the region get richer, a gradual improvement in Personal Freedom and Democratic Institutions takes place as evidenced by Japan, South Korea, and Hong Kong. Governance tends to improve as well (with China in the embryonic stage of this development path).

Does this imply that democratic institutions are not good for development or that authoritarian governments promote growth? Not necessarily as this Economics By Invitation feature by The Economist showed. While as Alberto Alesina states, there may be no evidence that democracies promote faster growth, and that as Lant Pritchett suggests authoritarian regimes tend to have a spotty record, as Daron Acemoglu who co-wrote a book on this (shown below) as well as Ricardo Hausmann, Arvind Subramaniam, and Yang Yao suggest, getting the right incentives, institutions and governance arrangements do matter.

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